New catch-up super contribution rules – what you need to know

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Ensuring your clients have sufficient savings in their superannuation account for a comfortable retirement is never simple, but some new super contribution rules could make that task a little easier.

The new rules were announced in the 2016 Federal Budget and allow eligible individuals to carry forward any unused concessional cap amounts into subsequent financial years.

These so-called ‘catch-up contributions’ represent an invaluable opportunity for eligible low balance clients to get more money into their super account.

“The aim is to support Australians to make catch-up contributions and increase their super savings,” explains ATO Assistant Commissioner, Graham Whyte.

“It is designed to help the section of the population who don’t have large retirement nest eggs, or who have been out of the workforce for a long time. Catch-up contributions can make a significant difference.”

Getting the rules right

Financial advisers need to understand how the new rules work if they want to help clients boost their retirement savings.

From 1 July 2018, individuals that do not use the full concessional cap, are able to utilise these unused contributions in the following years if they have a total super balance (TSB) of less than $500,000 before the beginning of a new financial year.

If eligible, individuals can carry forward any part of their unused concessional contribution cap amount (currently $25,000). The amount can be carried forward and used at any time in the subsequent five years to increase the person’s annual concessional contribution limit.

“If their TSB is less than $500,000 at 1 July 2019 and their contribution in 2018-19 was under $25,000, the individual can carry forward the unused cap amount to take advantage of this opportunity in a later year,” explains Whyte.

Who will benefit?

The Federal Government expects the new contribution rules will help a range of people saving for their retirement.

“The groups most likely to benefit from these contributions include low income taxpayers, or those who have been out of the workforce for a long time,” says Whyte.

The new contribution rules will be particularly attractive to people saving for retirement who have variable incomes.

“This contribution initiative will help people manage their cashflow and maintain their super contributions over several years. If you can’t afford to make the full $25,000 in one year, then you can look to make the full contribution over a five-year period,” explains Whyte.

“The new rules will make it easier to align super contributions to when you can afford it.”

Like most things super, financial advisers will need to check carefully to ensure clients do not exceed their contribution caps.

“Many contributors will need to work with a financial adviser or tax agent to understand their eligibility for this contribution,” he says.

“To be eligible to make contributions from 1 July 2019, they need to have contributed less than $25,000 in the previous financial year and have a TSB of under $500,000.”

Watching a client’s total super balance

A client’s TSB also needs to be closely monitored, as this new limit is still not widely understood.

“The super fund contribution statement will include a member’s super account balance, but this can be different to their TSB. For example, if the member is in a defined benefit fund it can be substantially different.”

The ATO is currently looking at ways to make TSB information more readily available, including through the client’s MyGov account. Tax agents are able to request a TSB through the ATO’s Tax Agent Portal.

Case study: using catch-up super contributions

Jenny’s employer contributions are $10,900 in 2018–19 and her TSB at 30 June 2019 is less than $500,000.

In 2018–19, Jenny wants to add additional funds into her super. She organises to have $350 from each fortnightly pay contributed to her super before tax through salary sacrificing.

By contributing $350 per fortnight of her gross income, Jenny is making concessional contributions of $9,100 for the year. The sum of Jenny’s employer contributions ($10,900) and salary sacrifice contributions ($9,100) is $20,000. Because Jenny’s employer and salary sacrifice contributions total less than $25,000, Jenny is under the concessional contributions cap.

In 2019–20, in addition to her normal $25,000 concessional cap, Jenny can also use the $5,000 of unused cap from the previous year. Jenny’s total concessional cap for 2019–20 is $30,000.

Source: ATO

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Important: This article has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. Before acting on the information, you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. Any information used in this article is for illustrative purposes only. Graham Whyte is external and not a member of the Commonwealth Bank of Australia Group of Companies (the Group) and the content or any view expressed by Graham Whyte does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. CBA, nor members of the Group accept any liability for losses or damage arising from any reliance on external parties their products, services and material. Past performance is no guarantee of future performance.